Natural gas transmission systems of the three Baltic States and Finland historically have been isolated from the rest of the Europe with all gas supplies received from single source – the Russian Federation, via single route – high pressurized natural gas network physically linking Latvia and Estonia with Russia, and Lithuania with Be...

Natural gas transmission systems of the three Baltic States and Finland historically have been isolated from the rest of the Europe with all gas supplies received from single source – the Russian Federation, via single route – high pressurized natural gas network physically linking Latvia and Estonia with Russia, and Lithuania with Belarus. The situation remained unchanged till the very end of 2014, as the first liquefied natural gas (LNG) import terminal was put into commercial operation on January 1, 2015. Situated in the area of the free port of Klaipeda, North Eastern Lithuania, near so called Pig Back’s Island, it is actually not only the first LNG import terminal built in the Eastern Baltics, but also the very first such gas supply infrastructure object in all the Baltic Sea region.

Source: Wikipedia

The main element of the new LNG terminal – FSRU (floating storage and regasification unit) 'Independence', built in South Korea by Hyundai Heavy Industries, arrived at Klaipeda Sea port on October 27, 2014. The vessel is designed as a combined floating LNG storage and regasification unit, and will be leased from its current owner – Norwegian Höegh LNG, for 10 years. When the lease period is over, the Klaipeda terminal operator will need to make a decision regarding a FSRU buyout. Independence has a maximum regazification capacity close to 4 billion cubic meters of natural gas per annum (BCM/a), which corresponds to approximately 2,2 million tons of LNG. Onboard Independence four storage tanks are located with a total capacity of 170,000 cubic meters. However, Lithuania currently does not have additional domestic options for natural gas storage, there are no underground gas storages (UGS) in the country. So, until the end of this year, maximum gas import capacity though Klaipeda LNG terminal will exceed 2 BCM/a due to limited cross–border natural gas transport capacity between Lithuania and Latvia, where the only UGS in the Baltics – Inèukalns, is located and available for storage of large amounts of natural gas.

Regarding additional natural gas storage capacities at home, Lithuanians hope that by 2020–2021 they will be able to put online their own UGS in Syderiai, Telðiai region, with total active gas capacity of 500 million cubic meters (MCM), which will address both Lithuanian and Polish natural gas market demand. By 2020, the natural gas infrastructure interconnection linking Poland and Lithuania should be already in place.

The first test natural gas delivery of 100,000 m3 to Klaipeda LNG terminal took place in October of 2014, onboard LNG tanker Golar Seal, but the first commercial LNG cargo arrived there onboard Arctic Aurora on December 23. It took 48 hours to pump the gas into FSRU Independence.The commercial cargo amounting 141,000 m3 of LNG or 80,9 MCM in equivalent of regasified natural gas was supplied to the system on January 1, 2015. In accordance to the five years (mid–term) contract signed by the operator of the Klaipeda LNG terminal Litgas (established in 2012 as part of the state–controlled energy company group Lietuvos Energij'a) and the Norwegian company Statoil, the latter will guarantee supply of natural gas to Lithuania in amount of 950,000 m3 or 540 MCM/a. It means that each year Statoil will deliver up to 7 LNG cargos to the Klaipeda LNG terminal. The Lithuanian party in turn has an obligation to ensure this supply as the designated supplier approved by a decree of the Lithuanian Ministry of Energy. The price of LNG delivered to Klaipeda LNG terminal is linked to the value of Great Britain’s natural gas exchange NBP index.

With its planned maximum natural gas import capacity of 3–4 BCM/a, the newly built Klaipeda LNG terminal becomes an important, even strategic part of the Baltic States’ natural gas supply infrastructure, as, on the one hand, it provides the possibility to diversify both routes and sources of the natural gas supplies for Lithuania, the biggest gas consumer among the Baltic countries (up to 3 BCM/a), and on the other – ensures a delivery of certain amounts of the natural gas to Lithuania’s neighboring countries Latvia and Estonia. As for Latvia, these deliveries can be realized directly, without any transit options needed, while deliveries to the Estonian market require gas supplies via Latvian territory. Gas export possibilities from Lithuania to Finland currently are not available due to lack of cross–border natural gas transport infrastructure interconnections between the Baltic countries, namely, Estonia and Finland. Needless to say, overall development of the European and Baltic natural gas supply systems and gradual liberalization of the market is realized according to the European Union level legal framework set by Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC (Directive 2009/73/EC), which is adopted in the energy sector legislation of three Baltic States as well. In terms of practical implementation of the Directive’s 2009/73/EC requirements, The Baltic Energy Market Interconnection Plan (BEMIP) approved in 2009 was set as a conceptual step by step roadmap aimed at the creation of well functioning and integrated electric energy and natural gas market in the Baltic region. The very idea of the BEMIP is that all the initiatives must be supported by the necessary physical infrastructure, with a focus on enhancements in natural gas sector as top priority. Projects like enhancement of the natural gas flows between Baltic countries, cross–border on land interconnection of the Baltic and Central European natural gas networks (via Poland) and building of the regional LNG terminal, also are part of the European Economic Recovery Plan. These projects were eligible for funding totaling over EUR 0,5 billion till 2014. However, the Lithuanian LNG terminal project was fully funded by its developer, and its actual construction costs were significantly lower than previously planned. The LNG terminal itself, its infrastructure and interconnection with existing national natural gas grid totaled EUR 101,4 million, saving about EUR 30 million. LNG terminal infrastructure costs will be included in the transmission tariff, and covered by users of the transmission system regardless whether they receive gas from terminal or not.

On 16 June, 2012, the Parliament of the Republic of Lithuania adopted the Law on the Liquefied Natural Gas Terminal, which ensures the required legal framework for the construction of the LNG terminal in Lithuania, as well as establishing financial and organizational conditions for technologically and economically sound operation of the LNG terminal and its infrastructure. The law reques ts all gas market participants to buy at least 25% of their annual gas consumption from Klaipeda LNG terminal. Terminal’s operator Litgas as the designated supplier has an obligation to supply 540 MCM/a through the LNG terminal for five years. This amount of natural gas will be further sold to heat and electricity energy producers, as electricity and heat producers are subject to the regulated heat prices in Lithuania. At the end of last year on October 17, Klaipeda Litgas air ed mandatory natural gas quota to be purchased from the terminal by the Lithuanian heat and electric energy producers. The electricity generation company Lietuvos Energijos Gamyba, the main heat supplier in Vilnius Vilniaus Energija and Kaunas Combined Heat and Power Plant are obliged to purchase the greatest part of natural gas delivered via Klaipeda LNG terminal, which is 176 MCM, 134,7 MCM and 29 MCM, respectively. The heat supplier Sirvintu Siluma is given much smaller quota of just 3,900 m3.

Natural gas delivered through Lithuanian LNG terminal will be transported to consumers in the Baltic neighboring country Estonia, too, as Litgas has signed its first deals with Estonian Reola Gaas, a part of Alexela Group, and the state–owned energy company Eesti Energia. In accordance to agreements, Litgas will supply 30 MCM of natural gas to Estonia this year, from which Reola Gaas already bought 12 MCM and Eesti Energia will receive 5,8 MCM.

In mid January, 2015, Reola Gaas inaugurated the first mobile liquefied natural gas station in the Baltic countries, and it is planning to become a public transportation pioneer of this field in the region by operating the first LNG powered buses in Estonia’s capital city Tallinn and Harju county. Eesti Energia in its turn will use natural gas for energy production.

It must be added that Latvian energy companies also are analyzing possibilities to receive natural gas from Klaipeda LNG terminal, and the first deal regarding Lithuanian alternative gas deliveries is already in place. This deal, however, is not about purchase of the gas resources; it is related to their storage. The Latvian natural gas company Latvijas Gâze – the owner of Inèukalns UGS, in early January signed the contract with Litgas. This contract, which is in force till 2017, says that the Latvian party will store 100MCM of natural gas in Inèukalns UGS for needs of the Lithuanian natural gas consumers in 2015 and 2016. Said amount of gas resources will be delivered back to Lithuania during the winter season, when natural gas consumption rises to a maximum due to high demand in district heating – the actual heating season’s gas consumption in the Baltics comes up fourfold in comparison to summer period.